Small Business Guide to Charitable Giving and Tax Deductions
For gifts of property or equipment, the deduction depends on how much you donate. For example, if you donate clothing to a homeless shelter, you receive a deduction for fair market value, rather than the new value of those clothes. If you give cash or property to a charitable organization that exceeds a $250 value, you’ll want the organization to recognize your gift in writing. This is necessary for tax purposes. A non-cash charitable deduction of $500 requires you to fill out this IRS form. Donations to nonprofits typically don’t have to be reported on a 1099 form, though. The paperwork and different rules are two reasons why it’s safest to speak with a tax professional as you aim to increase your charitable giving.
The IRS has some rules on how much money you can deduct. According to the IRS website, “In general, contributions to charitable organizations may be deducted up to 50% of adjusted gross income computed without regard to net operating loss carrybacks. Contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30% adjusted gross income (computed without regard to net operating loss carrybacks), however.”
The site goes on to say that the 50% rule applies to four different types of charitable organizations:
Private operating foundations
Private foundations that distribute donations to private operating foundations and public charities within 2.5 months from when the contributions are received
Private foundations that pool contributions and eventually pay them to public charities
The 30% rule applies to private foundations that don’t fall under the 50% rule. Again, the details of charitable tax deductions can get a little tricky. It’s helpful to know your business’s net gross income and to speak with a tax professional. It’s better to talk to a qualified tax advisor than make mistakes on your tax forms and deduct contributions that shouldn’t be deducted.
As for cash contributions, the Tax Cuts and Jobs Act raised the maximum donation to 60% of your adjusted gross income.
Be sure to keep track of your donations through written records. Include when you’ve donated and how much money. Having records to look back at makes tax season easier, and it helps ensure you won’t be subject to an audit or have legal repercussions.